Remember when the central bank of the United States worried about development in the, well, United States? Those days are gone. Presenting: China. From page 8 of Yellen's speech on "The Outlook, Uncertainty, and Monetary Policy":
There is a consensus that China’s economy will slow in the coming years as it transitions away from investment toward consumption and from exports toward domestic sources of growth. There is much uncertainty, however, about how smoothly this transition will proceed and about the policy framework in place to manage any financial disruptions that might accompany it. These uncertainties were heightened by market confusion earlier this year over China’s exchange rate policy.
Confusion, that is to say, which was the direct result of the US Dollar soaring to multi-year highs, which forced China, whose currency is peg to said dollar, to aggressively devalue its own currency.
The rest is history.
And it's not just China: it's every country which, as we warned in November 2014, is reliant on the viability of the Petrodollar, and more importantly, keeping the USD low. Here is Yellen explicitly addressing the impact of collapsing oil prices on oil exporters.
A second concern relates to the prospects for commodity prices, particularly oil. For the United States, low oil prices, on net, likely will boost spending and economic activity over the next few years because we are still a major oil importer. But the apparent negative reaction of financial markets to recent declines in oil prices may in part reflect market concern that the price of oil was nearing a financial tipping point for some countries and energy firms. In the case of countries reliant on oil exports, the result might be a sharp cutback in government spending; for energy-related firms, it could entail significant financial strains and increased layoffs. In the event oil prices were to fall again, either development could have adverse spillover effects to the rest of the global economy.
In other words, as John "Idiot?" Williams said yesterday, it is no longer about the US: the Fed's so-called "reaction function" can be summarized with just one word: China. (and maybe one more word: oil, which the Fed just realized needs a low USD to rise...)